Why UiPath fell 16.8% in September
Actions of UiPath (NYSE: PATH) fell 16.8% in September, according to data from S&P Global Market Intelligence. The business process automation software company just entered public markets in April.
However, as a high growth software company, UiPath also shows high valuation. So while the company posted strong quarterly results earlier this month, they weren’t enough to entice investors to bid on the stock. Additionally, the end of the month saw growth stocks sell off largely amid fears of rising interest rates.
For its second quarter of fiscal 2022, which ended on July 31, UiPath exceeded analysts’ expectations for revenue, which rose 40%, and adjusted earnings per share, which s ‘is set at $ 0.01. Still, those two metrics are a little less important than what UiPath calls its annualized renewal rate, which rose 60% to $ 726.5 million. This metric is the annualized billed amount for UiPath term subscriptions, assuming there is no increase or decrease, and does not include single perpetual license sales.
Net retention also appealed to this investor, reaching an impressive 144%. This means that the average UiPath customer spent 44% more on the company’s software than last year, indicating that the company’s products are delivering value to customers.
So what was the problem? It’s hard to say. The company said its annualized renewal rate was between $ 796 million and $ 798 million in the next quarter, for a quarterly growth rate of just 9.7%. On an annualized basis, this is only a 40% growth rate, which would mark a deceleration from 60% in the last quarter. But management could just be conservative.
At the end of the month, growth stocks in general were beaten after the Federal Reserve said it would cut its bond purchases later this year or next, which pushed up the Treasury yield. in 10 years. A higher discount rate would mean a lower value placed on future profits. UiPath is still losing money on a GAAP basis as it invests to capitalize on its significant market opportunity, so it has been hit along with the stocks of many other high growth companies without profit.
After its sale, UiPath is trading below its initial public offering price of $ 56 from April. Based on the company’s forecast, it is also trading at around 30 times its expected annualized renewal rate for 2021.
That would be an expensive assessment for a typical business, but not that expensive for a software company that is growing as rapidly as this one, in a market that is also expected to grow rapidly over the next decade. According to IDC, the automation software market, which was worth $ 17 billion in 2020, is expected to reach $ 30 billion by 2024, en route to a market opportunity of $ 60 billion further.
The question is whether UiPath can continue to innovate. At present, its automation platform, which can perform many petty business tasks, seems to be a big hit with customers. But management is now investing heavily in what they call semantic automation, which brings more AI into the platform, allowing it to act and think critically, more like a human.
If management realizes this vision and continues to dominate the automation software market, the recent drop in UiPath’s share price could prove to be a great buying opportunity for long-term investors. In fact, Cathie Wood, CEO of ARK Invest, recently downsized her You’re here (NASDAQ: TSLA) position to buy UiPath shares on its recent decline for the ETF Arche Innovation (NYSEMKT: ARKK). While Tesla is still the largest stake in this fund, UiPath now accounts for around 3.2%, making it the twelfth position in the ETF.
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